Nov. 27 (Bloomberg) -- ConAgra Foods Inc. won the backing
of Ralcorp Holdings Inc. for a takeover with a $5 billion bid,
ending a 20-month standoff after Ralcorp shareholders pressured
the maker of private brand foods to stop opposing the deal.

Buying Ralcorp, which sells foods under retailers’ own
brands, will more than quadruple ConAgra’s private-label sales
to $4.5 billion. The transaction will create a company with
sales of about $18 billion, providing leverage to boost prices
in a way ConAgra’s stable of second- and third-tier brands
haven’t, said Erin Lash, an analyst with Chicago-based
Morningstar Inc.

“It is a good strategic fit for ConAgra,” Lash said today
in a telephone interview. “It could enhance their relationships
with retailers and it extends their portfolio beyond their
lackluster brands.”

The offer of $90 a share is 28 percent more than Ralcorp’s
closing price yesterday, the companies said today in a
statement. Including debt, the transaction is valued at $6.8
billion and is expected to be completed in March.

Ralcorp, based in St. Louis, surged 26 percent to $88.80 at
the close in New York, its biggest gain since at least 1997.
ConAgra, the Omaha, Nebraska-based maker of Chef Boyardee and
Healthy Choice meals, increased 4.7 percent to $29.63.

Reviving Bid

Ralcorp agreed to the deal partly because of increased
pressure from top Ralcorp shareholder Corvex Management LP, the
activist investing group run by Keith Meister, which had pushed
the private-label food maker to pursue a combination, said two
people familiar with the matter. Meister bought into the company
on Aug. 23 and first began talks with Ralcorp in mid-September,
said a person familiar with the matter.

ConAgra and its advisers decided to restart talks after
Ralcorp added Meister to the board in October without a fight,
said one of these people. Ralcorp also wanted to cement the deal
ahead of releasing mixed fourth-quarter results, said the
people, who declined to be named because the negotiations were
private.

The agreement ends a pursuit that began in March 2011 by
Conagra Chief Executive Officer Gary Rodkin, who withdrew a $94-a-share takeover offer in September 2011 after it was rejected.
Ralcorp, which sells cookies and pasta under retailers’ own
brands, chose instead to spinoff its Post Foods unit to focus on
the private-label goods. Ralcorp had spurned previous offers of
$86 and $82 a share.

Private Label

“This really recognizes that private label is going to be
probably the biggest growth vector in the food industry for
years to come,” Rodkin said today in an interview, adding that
today’s deal price is “apples to oranges” compared to the
previous offers to buy Ralcorp because of the Post spinoff and
other companies Ralcorp has bought and sold.

Private label represents 18 percent of sales in the
packaged food market in the U.S. and has had growth “in excess
of the overall food market over time,” the companies said
today.

Ralcorp will give ConAgra more access to retailers
including Trader Joe’s Co. and Costco Wholesale Corp., Rodkin
said. ConAgra’s Lamb Weston food service unit is a major
supplier of frozen french fries to McDonald’s Corp., and
Ralcorp’s portfolio of frozen bakery products will enable
ConAgra to sell breakfast offerings to restaurant chain as well,
Rodkin said.

Largest Takeover

Rodkin said he doesn’t expect competing bidders or
antitrust concerns, given the fragmented nature of the private-label industry and the low amount of product overlap between the
companies.

Since December, ConAgra has acquired four companies
including Unilever’s North American frozen meals unit for $265
million.

Today’s transaction is the largest takeover in the U.S.
diversified food sector in at least a decade, with ConAgra
paying about 11 times earnings before interest, taxes,
depreciation and amortization, according to data compiled by
Bloomberg. That compares with the median of 10.5 times Ebitda in
a survey of 13 comparable deals over the past 10 years.

ConAgra, the maker of Orville Redenbacher’s popcorn and
Banquet frozen meals, said the deal will have a “modest
benefit” to its fiscal 2013 financial results. The company said
it expects about $225 million of cost savings on an annual basis
by the fourth full fiscal year after the completion of the
transaction.

Restate Results

In May, Ralcorp said it would restate results for fiscal
2011 and first quarter of 2012 after understating an impairment
charge related to the spinoff of Post, which occurred in
February.

ConAgra will significantly reduce share repurchases, not to
zero, executives said during a conference call today. It also
will issue as much as $350 million of equity and is “fully
committed to its investment grade credit rating,” it said in
the statement.